CASE STUDY: The price elasticity of air travel demand varies according to the coverage and location of the market in which prices are changed and the importance of the air travel price within the overall cost of travel.

The estimate for the price elasticity of demand for a particular route was found to be −1.4 on average, whereas the price elasticity of demand for flights from any airport in one country to another were −0.8.

Air travel price elasticities on short-haul routes were higher than on long-haul routes. This largely reflects the greater opportunity for substitution on short-haul routes (e. g. travelers can switch to rail or car in response to air travel price

Q1.Explain why demand for short-haul flights was more price elastic than demand for long-haul flights.(6)
Q2.Discuss the significance of the findings above for the pricing of fights on a particular route.(10)

Profits from using currency options and futures.on july 2, the two-month futures rate of the mexican peso contained a 2 percent discount (unannualized). there was a call option on pesos with an exercise price that was equal to the spot rate. there was also a put option on pesos with an exercise price equal to the spot rate. the premium on each of these options was 3 percent of the spot rate at that time. on september 2, the option expired. go to the oanda.com website (or any site that has foreign exchange rate quotations) and determine the direct quote of the mexican peso. you exercised the option on this date if it was feasible to do so. a. what was your net profit per unit if you had purchased the call option? b. what was your net profit per unit if you had purchased the put option? c. what was your net profit per unit if you had purchased a futures contract on july 2 that had a settlement date of september 2? d. what was your net profit per unit if you sold a futures contract on july 2 that had a settlement date of september 2